Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?
AbstractHigh fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific nuclear characteristics making it unattractive to merchant generators in liberalised electricity markets, and argues that non-fossil fuel technologies have an overlooked ‘option value’ given fuel and carbon price uncertainty. Stochastic optimisation estimates the company option value of keeping open the choice between nuclear and gas technologies. This option value decreases sharply as the correlation between electricity, gas, and carbon prices rises, casting doubt on whether private investors’ fuel-mix diversification incentives in electricity markets are aligned with the social value of a diverse fuel-mix.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0555.
Date of creation: Nov 2005
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Nuclear economics; stochastic optimisation; fuel-mix; diversification.;
Other versions of this item:
- Fabien A. Roques & William J. Nuttall & David M. Newbery & Richard de Neufville & Stephen Connors, 2006. "Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-24.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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